Systematic Transfer Plan - Your Personal Harness in a Roller Coaster

Imagine the following hypothetical scenario:

The markets have gone through a roller coaster ride in the past few months and the biggest question in the minds of the investors is whether to invest or not amid volatility. How will the markets behave hereon? Is it a good time to invest? I do not want to lose the opportunity of staying away from the equity markets. Is there a solution?

Solution:

The "STP - Systematic Transfer Plan"

How does an STP work?

You can do an STP by investing in a lower risk fund (say, Liquid Fund or Arbitrage Fund) and transferring smaller portions of it in an Equity Fund periodically (daily, weekly, monthly or quarterly), thereby helping you average out the entry points.

7 Key Decisions that you need to consider when starting an STP

Investment Objective - You have to decide if you want to use STP as a tool for wealth creation or wealth preservation.
Investment Amount - Your investment amount is dependent on your investment objective, capacity to invest today and your investment horizon.
Source Scheme - Basis your investment objective, you have to choose a scheme in which you would park your money. If your objective is wealth creation, Arbitrage Funds can be an ideal alternative to debt funds because of its tax-efficiency.
Transferee Scheme - Basis your investment objective, you have to choose a scheme in which you want to systematically transfer your investment from the Source Scheme.
Amount of Transfer - The amount of transfer is dependent on your investment horizon and your capacity to invest today.
Start and End Dates of Transfer - Start and End Dates of transfer are as per your convenience.
Frequency of Transfer - You can choose from different transfer frequencies like daily, weekly, monthly or quarterly.

Let’s understand STP through an Example…

Let’s assume that an investor named Aditya had faced a similar situation discussed above in the past. At the time, his advisor had suggested him to do an STP from HDFC Arbitrage Fund to HDFC Flexi Cap Fund since he was underinvested in equities. Using the framework mentioned above, Aditya made the following decisions for his STP:

Based on the above decisions, the final value of Aditya’s investment using STP to HDFC Flexi Cap Fund would have been ₹63.80 lakh as on February 28, 2025!

Views expressed above are indicative and should not be construed as investment advice or as a substitute for financial planning. Due to the personal nature of investments, investors are advised to seek professional advice before investing in any scheme. The above is not a recommendation or investment advice, investors are advised to invest as per their investment objective and risk appetite or seek professional advice before investing in any scheme.

Thus, STP allowed Aditya to say Yes to 3 Things:

Yes, to Reallocation

We have often heard the expression – “Money that stays idle, does not earn any interest!” Hence, parking his money in an Arbitrage Fund for the short term allowed Aditya to reallocate his money from his savings account, thus aiding him to stay invested in the equity markets.

Yes, to Averaging

Just like a Systematic Investment Plan, this plan also helped Aditya to average out cost of investment as units were accumulated gradually over a period of time at different NAVs.

Yes, to Distance

Transferring Aditya’s investment amount to a Flexi Cap Fund systematically allowed him to distance himself from the noise that could create chaos in equity markets. Thus, by not letting his emotions get the better of him, he was able to navigate through the market volatility and stay invested for a long period of time.

We are aware that in the short term, various news and events make equity markets volatile, which makes predicting the correct entry and exit points quite challenging. Against this backdrop, Systematic Transfer Plan could be a very useful investment path for mitigating risk of capital erosion due to unfavorable market timing and achieving your long-term goals.